Estonia to tax international digital companies in three years

Dmitri Jegorov
Dmitri Jegorov Source: Vladislava Snurnikova/ERR

Estonia and other EU member states will probably start taxing international digital giants, like Facebook and Google, in 2022 at the earliest. Even though Estonian media companies have suggested doing it a year earlier, the introduction of specific tax regulation for a period of one year remains unlikely.

"Development of digital economy means international tax rules have become hopelessly outdated because they are based on geography, national borders, physical assets etc. None of it matters for modern digital economy," Dmitri Jegorov, deputy chancellor for tax and customs policy of the Ministry of Finance, told ERR.

To change this, two directive proposals have been made and discussed at length on the EU level. Jegorov said that these proposals have been shelved for now as the OECD is working on a global solution.

"The OECD came out with its compromise proposal last week," Jegorov said, adding that the organization aims to have a digital taxation regulation next year.

"The new Commission, specifically Margrethe Vestager, has said that if the OECD fails to table a sensible proposal, the European Union will develop its own regulation," Jegorov said.

The timeline should see the OECD come out with its proposals in 2020, the European Union discuss how to adopt them in 2021 and digital taxation become reality in 2022-2023, the deputy secretary general said.

"The question now is whether Estonia could put something like that together much faster. Would it make sense? Because it would be a temporary solution. I believe a global or at least a European solution will be found," Jegorov found.

The Estonian Media Companies Association has made a proposal to the Ministry of Finance to tax international digital companies in Estonia. The association's proposal would see digital giants taxed for 3-5 percent of turnover.

Media houses say in their proposals that because the OECD is still working on its proposal, Estonia could take taxation into its own hands.

"Our proposal is nothing unique or characteristically Estonian in nature. It is based on what has long been discussed in Europe but hasn't been agreed on for various reasons. However, the principles are there," Mart Raudsaar, head of the association, told ERR.

Raudsaar said several EU countries are working on individual digital taxation regulation based on that same logic. France has already passed its rules. All of it would, of course, be temporary, to remain in effect until common EU rules are laid down, Raudsaar added.

Media companies believe Estonia could make €9-24 million a year on taxing digital companies. The finance ministry finds this estimate to be too optimistic, with its revenue forecast limited to €1-5 million.

Raudsaar said that Estonia could enter its own regulation into force in 2021.

Jegorov agrees. He added, however, that he remains unsure whether it would make sense to lay down a temporary tax in a situation where an EU regulation is already in the pipeline.

"OECD next year, the EU directive the following year and adoption of the directive into local legislation three years from now. That is the rough timeline. Were Estonia to consider laying down its own tax, we would spend 2020 discussing it and could enter it infor force in 2021. Seeing as the EU is set to lay down a coordinated tax in 2022, the question remains whether a domestic tax would make sense for only a few years," Jegorov reasoned.

He added that if taxation proposed by media companies is based on turnover, the OECD proposal is better in that it would tax profits. The OECD wants to limit taxation to profits, which solution would see target countries' tax administrators share in the revenue, Jegorov explained.

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Editor: Marcus Turovski

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